When an employee has been with you for a number of years you might want to recognise their loyalty with a cash or non-cash benefit. Provided you stick to the rules this is fine. But what’s the tax position on long service awards?
Time in the job
On 9 February 2018 HM The Queen became Britain’s longest reigning monarch at 70 years in the job. Whilst you’re unlikely to have an employee with this length of service, you could easily have individuals who pass the five, ten, 15 and 20 year point. There’s a common misconception that The Equality Act of 2010 bans the giving of long-service awards on the basis of age discrimination, but this is simply not true.
The legal position
The basic legal position (as set out in SCHEDULE 9) is that long service awards can only be made to employees if they are used to reward service of five years or less. In these situations nojustification for the award is required. However, if you want to reward staff with longer periods of service, you can do this where you reasonably believe that there will be a business benefit gained by linking length of service to the reward.
What’s reasonable here?
The most common reasons successfully used to justify long-service awards under this exception – which could be anything from additional holiday, sabbaticals, a gift or a monetary payment – are: (1) it encourages employee loyalty, i.e. individuals are motivated to remain in your continued employment; and (2) it enables you to reward and recognise those staff who have attained long service. This is important because a long-serving employee will have accumulated considerable business know-how.
Common rewards
Research shows that the most common way of rewarding long service is through a monetary award, either in the form of a cash payment or vouchers. In some cases this award is calculated as a percentage of salary. As an alternative, some employers give non-cash awards, e.g. pens, watches, clocks, champagne or celebratory meals out. This presents no problem from a legal perspective – but what’s the tax position?
Exempt or not?
In order to be exempt from the normal tax and NI reporting obligations, all the following criteria must apply:
- The employee has worked for you for at least 20 years
- The award is worth less that $50 per year of service
- That you have not given the employee any other long-service award in the previous 10 years.
Tip 1. If it’s not exempt you must report the costs to the HMRC and deduct tax and NI in the usual way. Make sure the employee knows this in advance of receiving their award or it will have a nasty sting in its tail. Allow the employee to reject the award if they wish.tails on when referrals to the Fit for Work assessment can be made in your
Tip 2. HMRC have issued online guidance for employers which explains the tax treatment of long term awards.
For any further advice or information please contact the team here at SFB Consulting. Our offices are based in Bishop’s Stortford and London, but we offer our services and consultancy UK wide.
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